BMI View: BMI is forecasting the UAE's defence budget to continue increasing in absolute, but notrelative terms for the next five years. However, we note that if the current dip in oil prices endures, somepotential is there for negative fallout in defence spending. Our view is that the general increase in spendingand procurement enables the UAE to adopt a more assertive defence posture in the Middle East and NorthAfrica region.

If the current dip in oil prices endures, there may be negative fallout for defence spending, although it is toosoon to determine given that the country boasts substantial reserves. We think that continued decline in oilprices may seem like bad news for the government's strategy to develop the defence industry as adiversification measure away from the hydrocarbons markets. However, we think that volatility in thehydrocarbons market also has the potential to boost spending in the defence sector, particularly if thegovernment has an increased urge to develop alternatives sooner rather than later as a result of the currentslump in prices.